How Digitalized Banking Will Force Collaboration And Other Key Highlights From Sibos
Returning from Sibos in Geneva, I am in a reflective mood on the main take-aways from this year’s event, key updates about the state of the payments industry—and what to expect in 2017.
This year’s hot topic was the digitalization of the banking system. Many of the main keynotes and sessions discussed PSD2 and its mandated objective of opening up of Europe’s majority held bank personal accounts to third party access. Research from Warwick University pointed out that ‘unbundling’ of traditional account relationships will lead to wider access to customer intelligence, sharing of customers and ultimately, will force banks to collaborate with smaller players. Banks are much less experienced at building ecosystems than the big tech players (Amazon, Google, Facebook, etc.). However, there is a mutual advantage of partnering with Fintechs that often find it easier to work with a bank that has passed regulatory compliance and can accept insured customer deposits. Scale and trust will remain on the side of the incumbents; the battleground is moving to the choice between a platform or a marketplace offering as well as the value proposition of the services provided.
Banks and third party providers will compete on service quality, as comparisons (and cost comparisons) will be much easier to communicate via APIs. Some banks may go beyond PSD2 requirements and develop horizontal strategies to better engage customers or play a different role entirely in the future. Banks may potentially become a provider of central repository of credit profiles, control data, customer preferences, etc. As a consequence of digitalization, modernized payments infrastructure will be able to provide confirmation of funds, clearing and payer/payee notification with the flexibility to support omichannel access. Robust messaging standards will enable remittance data to drive value for business customers and support e-invoicing, real time fraud prevention and ultimately, the integration of foreign transfers to generate value for both consumers and commercial customers.
Yes, there was much distributed ledger innovation on show--but the hype was relatively subdued given the reality of managing complex payment systems in a regulated environment. 2016 has certainly been the year of tests, trials and proofs of concept. However, by this time next year, some 15% of them could be running blockchain solutions in the real world, according to new research from IBM. The financial stability keynote touted the virtues of distributed ledger technologies to help understand the interconnectedness of financial systems and aid regulators to monitor for future points of failure.
Robo-advice—automated, algorithm-based portfolio management guidance—was another big topic at this year’s event. By its very nature, development in this area can be regarded either as one that threatens employees in the financial services sector, or one that frees up their time to spend on more rewarding work. However, it was clear from the deliberations that some form of human/robo collaboration will always be needed to mitigate unpredicted events and maintain client trust for high value transactions.
Inevitably, cybersecurity, with the $81 million raid by hackers using SWIFT codes on Bangladesh’s central bank in February, led SWIFT’s CEO to pledge that security upgrades and better information sharing would be introduced for its inter-bank transfer system. A high profile panel, including the Marco Gercke from Cyber Crime Research Institute, advocated the need for better information sharing of cyber security attack vectors and the need to accept that future banking systems should not attempt the impossible by trying to win the arms race with well-funded cyber criminals. Instead, systems would need to work more like the human immune system, which hosts and fights off viruses continuously. Financial institutions, it seems, should accept their core systems will always be vulnerable and mitigate ‘risk’ as well as prepare contingencies.
See you all next year in Toronto!
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